On October 9, 2020, Lisa Tavares was quoted in PlanSponsor on the administrative challenges associated with the SECURE Act’s requirement to let part-time employees join 401(k)s.
According to the article, the SECURE Act requires employers maintaining a 401(k) plan to have a dual-eligibility requirement under which an employee must complete either a one year of service requirement, with the 1,000-hour rule, or three consecutive years of service in which the employee completes at least 500 hours of service.
Tavares says plan sponsors have to give vesting credit to newly eligible part-time employees for all years even prior to 2021. "They haven’t been counting hours because these employees were excluded from the plan, but now they will have to go back and figure out hours for prior years," she says.
Using equivalencies is a consideration for plan sponsors, Tavares says. Existing IRS rules related to counting hours for eligibility—as well as for vesting—allow plan sponsors that do not track actual hours to use equivalencies. For an example of equivalencies, if an employee worked any time in a month, he is considered to have worked 190 hours for the month. "This is a more generous way to calculate eligibility and vesting credit, so some may not want to do it, but it’s administratively easier," Tavares says.
Click here to access the article.